On December 8, 2023, the South Korean National Assembly passed the amendment on the Fair Franchise Transaction Act (the “FFTA”), which proposes adding a list of mandatory items and calculation methods of their supply prices as one of the essential elements to be included in franchise contracts. Furthermore, the KFTC is currently seeking public comments during the period between December 3, 2023, and January 15, 2024, on the amendment to the Enforcement Decree of the FFTA to obligate franchisors to consult with franchisees in advance when changing transaction conditions unfavorably to franchisees and to include the consultation procedure in franchise contracts.
I. AMENDMENT TO THE FFTA PASSED BY THE KOREAN NATIONAL ASSEMBLY
The amendment that passed the plenary session in the National Assembly on December 8, 2023, includes the measure compelling franchisors to include the type of mandatory items and the calculation method of their supply prices in franchise contracts. Simply put, when a franchisor wants to obligate franchisees to purchase particular goods and services for the franchise business from the franchisor or any suppliers designated by the franchisor, it should include clauses stipulating the type of such mandatory items and method on how the supply prices of such items should be calculated in the franchise contract.

The amended FFTA is expected to be soon promulgated after the subsequent government procedures and it will enter into force six months after the date of its promulgation. Article 11(2)12 of the amended FFTA applies to franchise contracts that are already in existence at the time when the amended FFTA takes effect as well as those franchise contracts that are to be executed or renewed after the implementation of the amended FFTA. As for the franchise contracts that are already in existence at the time of the implementation of the amended FFTA, franchisors shall revise the franchise contract to include the relevant details pursuant to Article 11(2)12 of the amended FFTA within six months of the implementation date of the amended FFTA.
II. THE KFTC IS SEEKING PUBLIC COMMENTS ON THE AMENDMENT TO THE ENFORCEMENT DECREE TO THE FFTA
The KFTC issued an advance notice to pursue an amendment of the Enforcement Decree of the FFTA, which requires a franchisor to consult with franchisees in advance when it intends to change the terms and conditions of the franchise contract unfavorably to franchisees in order to prevent franchisors from unilaterally and unfairly changing the terms and conditions of transactions, such as price, quantity and quality of goods and services. In addition, the amendment requires franchisors to explicitly state in the franchise contract the procedures for such consultations.
The main changes of the above amendment to the Enforcement Decree of the FFTA are twofold: (i) to oblige a franchisor to proceed with consultations with the franchisees if the franchisor changes terms and conditions of the transaction in a way disadvantageous to franchisees, such as increasing the number of the mandatory items, lowering the quality or quantity of the products, or changing the pre-existing price calculation method unfavorably to franchisees; and (ii) to determine the procedures for such consultations in advance.
In particular, the amended Enforcement Decree of the FFTA proposes the following:
(i) To add as essential elements to the franchise contracts the procedures for consultation concerning changes in terms and conditions of transactions (Article 12 (7) of the amended Enforcement Decree of the FFTA); and
(ii) To add stipulating the mandatory items in the franchise contract and going through consultation with franchisees in good faith when making changes in terms and conditions of transactions unfavorably to the franchisee, as one of the requirements to exceptionally allowing compulsory transaction of the mandatory items ([Annex 2] 2. B. (3), (4) of the amended Enforcement Decree of the FFTA).
The KFTC’s reasoning behind the amendment of the elements to exceptionally allow the compulsory transactions is that it is difficult to properly regulate the conduct of arbitrarily changing the mandatory items or rapidly increasing the supply prices of the mandatory items under the current provisions.

III. CONCLUSION
When the above amendments to the FFTA and the Enforcement Decree take effect, it will be more likely for the KFTC to sanction a franchisor if the KFTC finds that the franchisor inflicted a disadvantage to the franchisees by such means of expanding the scope of mandatory items or changing the method of calculating supply price of the mandatory items in a way unfavorable to the franchisee compared to what was stipulated in the franchise contract. In addition, it may also become easier for the franchisees to raise challenges through dispute mediation or civil lawsuits based on the franchise contract. Therefore, franchisors should pay close attention to the details of the amendments to the FFTA and the Enforcement Decree.
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